Bailout fatigue falls hard on autos

By Charles Babington THE ASSOCIATED PRESS

Tuesday

Mar 31, 2009 at 12:32 AM

President Barack Obama is dealing with the beleaguered auto industry more sternly than he has with bailed-out banks and insurers as he takes the nation another step into uncharted government regulation of industry.

By now, it may seem obvious that the government is playing major roles in running huge corporations, including banks, insurance companies and automakers receiving billions of dollars in federal aid. Yet the message is still hard to absorb by many unions, retailers and, most visibly, executives who took big bonuses or chartered jets to congressional hearings where they sought the money to keep their firms afloat.

The Obama administration, perhaps reflecting public sentiment outside Michigan, has shown less patience with the auto industry than with other troubled sectors.

General Motors’ chief executive, Richard Wagoner, must go, the administration said, workers must make concessions, and Chrysler must pursue a merger with Italian automaker Fiat SpA if more government help is to be considered.

The administration is tightening its oversight of bailed-out financial companies, too, but it has been generally more lenient in terms of time, personnel and other factors. Nor has Obama demanded that financial-sector workers and unions make more “painful concessions,” although that sector is far less unionized than the auto industry.

Union contracts, it appears, are not as sacrosanct in the administration’s opinion as the one it has left intact at AIG, which provided politically radioactive retention bonuses to employees.

The president went farther down the road of federal intervention yesterday. He embraced possible short-term bankruptcy and reorganization by Chrysler and GM (Ford is not involved), an idea he had rejected as president-elect in November. Obama even advanced the novel idea of having the government back new-car warranties issued by both GM and Chrysler to reassure buyers nervous about taking a chance on those companies.

“I know that when people even hear the word ‘bankruptcy,’ it can be a bit unsettling,” Obama said in his remarks at the White House.

Indeed. But many other events, including plunging job rates and savings accounts, have unsettled Americans even more.

Automakers brought much of this woe on themselves, resisting changes over the years that might have made them more efficient and competitive. Now they suffer from Americans’ resentment of bailing out big companies, and from the perception that the once-mighty auto industry is less vital to the nation’s well-being than are financial institutions.

“The banking sector is much more important to the economy now,” said Nariman Behravesh, chief economist for IHS Global Insight. The public, he said, “is suffering from bailout fatigue.”

These factors give Obama more leeway to be tough on the auto industry. As shocking as it would be to see a corporate icon such as General Motors file for bankruptcy, it would do less damage to the overall economy than would the collapse of another major financial institution, several economists said.

“If they think a firm is less important to the economy, the less help they’re willing to provide,” said Mark Zandi, chief economist at Moody’s Economy.com. “They are preparing for the possibility of bankruptcy and sort of walling off Chrysler and GM to keep them from being a larger systemic risk.”

Obama’s actions could have substantial political fallout, especially in Michigan, a state he could lose in a 2012 re-election bid if bitterness over the auto industry’s plight is aimed at him. Complicating the picture is the political clout of unions, a key part of the Democratic Party’s base. Unionized automobile workers feel they already have made deep concessions, but their unwillingness to go further is one reason the U.S. industry has not been more competitive.

Obama tried to soften the workers’ anger yesterday, first noting that Michigan suffers the nation’s highest unemployment rate, with more than one in 10 out of work.

“The pain being felt in places that rely on our auto industry is not the fault of our workers, who labor tirelessly and desperately want to see their companies succeed,” he said.

“And it is not the fault of all the families and communities that supported manufacturing plants throughout the generations. Rather, it is a failure of leadership, from Washington to Detroit.”

The politics of a troubled auto industry are murky enough to divide the Republican Party, at least for now.

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.